Warren Buffett kicked his stock-buyback program into high gear, spending $2.2 billion on repurchases in the last three months of 2019, the most ever in a single quarter.

Buffett's Berkshire Hathaway Inc. on Saturday posted a 23% decrease in quarterly operating profit, while soaring prices in stock holdings such as Apple Inc enabled the conglomerate to smash its old record for full-year earnings.

In his annual letter to Berkshire shareholders, Buffett defended Berkshire's foray into stocks, which comes amid a four-year drought since its last major acquisition that has left Berkshire sitting on $128 billion of cash.

Berkshire did step up repurchases of its own stock, buying back roughly $2.2 billion after repurchasing $2.8 billion in the prior nine months.

Buffett’s Berkshire loosened its buyback policy almost two years ago after being stymied on the dealmaking front. Since then, Berkshire has taken a cautious approach to repurchases, buying back only $6.3 billion of stock. JPMorgan Chase & Co., which counts Berkshire among its investors, bought back $6.7 billion on a net basis in the fourth quarter alone.

"I am delighted with the increased commitment to share repurchases," said Thomas Russo, a partner at Gardner, Russo & Gardner, which invests 13% of the $13 billion of assets it oversees in Berkshire. "It may be a very large arrow in Berkshire's quiver to increase intrinsic value on a per-share basis.

Fourth-quarter operating profit fell to $4.42 billion, or approximately $2,720 per Class A share, from $5.72 billion, or about $3,484 per share, a year earlier, hurt by underwriting losses in its reinsurance operations.

Berkshire also posted quarterly net income of $29.16 billion, compared with a net loss of $25.39 billion a year earlier, reflecting gains in its common stock holdings.

For all of 2019, net income totaled $81.42 billion, topping the record $44.94 billion for 2017, when Berkshire benefited from that year's reduction in the U.S. corporate tax rate.

Such huge swings stem from an accounting rule requiring Berkshire to report paper gains and losses from its stock holdings with net income even if it sells nothing.

Buffett wrote that the companies whose stocks Berkshire owns are generating returns that are "remarkable under any circumstances," and "truly mind-blowing" compared to low single-digit returns available on bonds.

"Over time, Charlie and I expect our equity holdings--as a group--to deliver major gains, albeit in an unpredictable and highly irregular manner," Buffett wrote, referring to Berkshire Vice Chairman Charlie Munger.

Apple (AAPL) soared 86% in 2019 and 31% in the fourth quarter alone, leaving Berkshire with a $73.67 billion year-end stake.

Despite the record results, Berkshire's stock was a laggard in 2019, rising 11% compared with a 31.5% gain in the Standard & Poor's 500 including dividends, in part reflecting the drag from the cash stake.

Among other Berkshire units, quarterly profit increased 4% at the BNSF railroad, while Geico posted a small underwriting loss.

Insurance float, which is premiums collected before claims are paid and helps fund Berkshire's growth, grew 5% last year to $129.4 billion, Berkshire said.

Key Insights

• Buffett can’t seem to keep up with the ever-growing pile of cash, which reached $128 billion at the end of 2019. Buffett, Berkshire’s chairman and chief executive officer, has sought to redeploy those funds into higher-returning deals or stock purchases, but has been stymied by what he’s said are “sky-high” prices for good businesses.
• Kraft Heinz Co., which counts Berkshire as its largest shareholder, had a tumultuous 2019, with writedowns, management shakeups and downgrades to junk. Buffett’s company carries its Kraft Heinz investment on its balance sheet at $13.8 billion, a figure unchanged since 2018’s fourth quarter, even as the market price of the stake dropped to $10.5 billion at the end of last year.
• Berkshire’s operating earnings fell 23% in the fourth quarter from a year earlier, driven in part by an underwriting loss at its insurance operations.
• Berkshire’s BNSF railroad posted a 3.8% gain in profit in the fourth quarter, just shy of record earnings in the previous three months, as a decline in expenses helped counter falling revenue across shipments of products such as coal, consumer items and agricultural goods. BNSF posted a regulatory filing Friday night, on the eve of the release of Buffett’s annual letter, giving investors a sneak peek of results.
• Berkshire’s net income swung to a profit of $29 billion due to swings in its $248 billion stock portfolio, which started showing up in earnings two years ago following an accounting change.
• To read Berkshire’s annual and the Buffett letter, click here now.

Market Reaction

• Berkshire’s Class A shares (BRK/A) underperformed the S&P 500 Index last year by the widest margin since 2009. The stock has gained just 1.1% this year.

This report uses material from Bloomberg and Reuters.